Tax Saving Option for the Estate Tax in Taiwan

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Tax Saving Option for the Estate Tax in Taiwan

 

In this modern age, people live longer, a grandfather would like to distribute the property, his children are aged, and grandchildren are grown-up. When considerate of the tax saving of the property, between the “Generation-skipping Transfer Before Death” or “Children Abandon of Inheritance”, which way will be better?

 

All property of a decedent who was the Taiwan Citizen and resided in the Taiwan continuously shall be subject to estate tax of Estate and Gift Tax Act, no matter the estate is located within or outside the Taiwan.

Property left by a decedent who was the Taiwan citizen but resided outside the Taiwan continuously or who was the non-Taiwan citizen shall be subject to estate tax for the estate that located within the Taiwan.

 

The taxpayers of the estate tax shall be:

  1. The executor appoint in the will, will be the executor of the will.
  2. Heir or legatee, in case no executor is appointed.
  3. The administrator appointed according to the law, in case there is no executor or heir.

The calculation formula is as below:

  1. Gross Estate: All the property, and the property gift to the spouse or the heirs (according to the Articles No. 1138 and No. 1140 of the Civil Law) two years before his/her death.
  2. Taxable Estate = Gross Estate – Exemptions – Deductions
  3. Estate Tax Payable = Taxable Estate * Tax Rate – Progressive Difference – Imputation Tax Credit and Interest

Currency: TWD

Items Description Succession Date

(Date of Death)

Before 22 January 2009

 Succession Date (Date of Death)

After 23 January 2009

 Succession Date (Date of Death)

After 1 January 2014
Before adjustment CPI adjustment since year 2006 – –
Exemptions – 7 million 7.79 million 12 million 12 million
Excluded from Gross Estate Daily necessities of the decedent 0.72 million 0.8 million 0.8 million 0.8 million
Apparatus for professional use by the decedent 0.4 million 0.45 million 0.45 million 0.5 million
Deductions Spouse 4 million 4.45 million 4.45 million 4.45 million
Lineal descendants by blood 0.4 million 0.45 million 0.45 million 0.5 million
Parents 1 million 1.11 million 1.11 million 1.23 million
Special Deduction for Disability 5 million 5.57 million 5.57 million 6.18 million
Deductions for surviving spouse, lineal descendants, parents, siblings and grandparents of the decedent 0.4 million 0.45 million 0.45 million 0.5 million
Deduction for funeral expenses 1 million 1.11 million 1.11 million 1.23 million

 

The amounts in each tax bracket for Estate Tax is as below:

The succession date (day of death) after 12 May 2017 is applicable for the table below:

 

Currency: TWD

Taxable Estate Tax Rate (%) Progressive Difference
Below 50 million 10 0
50 million to 100 million 15 2,500,000
100 million above 20 7,500,000

 

Generation-skipping transfer refers to the gifting of wealth to the grandchildren. If the grandfather does not take any action, the wealth will be inherited by the children, the children will need to pay for the estate tax when they successes, and the grandchildren will need to pay again for the estate tax when it is successes from the children to grandchildren. Therefore, the estate tax could pay one time less when the grandparent generation-skipping transfer to the grandchildren. The gift tax could be paid over a period, such as yearly or times, the tax rate of the estate tax could divide into three levels, that is 10%, 15% and 20%. Through gift planning, the tax rate could be controlled at 10% possibly, and avoiding the higher tax rate. Furthermore, the gift tax is paid by the grandfather, for example, the amount of gift is TWD 12.2 million (and below), there is an exemption of TWD 2.2 million for a year, at the rate of 10%, the grandfather will need to pay for the gift tax of TWD 1 million. Since the tax is paid by the grandfather, the wealth of the grandfather will reduce TWD 1 million, and the gross estate computed in the future will be lesser. The most important is the “Realize the will of the grandfather”. If the grandfather felt the grandchildren will be the heir, he could appoint whom he will gift. In practical terms, modern people are wanting to be fair. For example, there are 10 grandchildren, the grandfather will divide the wealth among 10 grandchildren, each grandchild will get the same amount of wealth, however, the difference is some of them may receive the cash, some may receive the real estate and some may receive the equity.

 

As stated above, the advantages for “Generation-skipping Transfer Before Death” compare to “Children Abandon of Inheritance” are as below:

  1. Changing the estate tax to gift tax, lowering the tax rate by dividing the gift over period.
  2. The gift tax paid by the grandfather, could reduce the gross estate in the future.
  3. The estate tax can pay one time lesser, as it is generation-skipping transfer before death.
  4. The most important points is carrying on the will and inherit the wealth.
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